China May Provide Stimulus in 2015, Which Could Be Good for Commodity Demand

China’s growth slowed to just below 7.5% during 2014, its slowest pace of economic growth in 24 years. Already, 2015 has seen a 0.5% reduction in the required reserve ratio. This is roughly equivalent to injecting $100 billion into China’s economy.9

There have also been reports that Beijing may approve 300 infrastructure projects worth a total of $1.1 trillion in 2015. This could be linked to even larger plans for industry specific stimulus, including oil and gas pipelines, health, clean energy, transportation and mining.10 While anything to do with China’s government is far from certain, we think that the bottom line is that China’s demand for the natural resources that Australia can provide may increase.

Thinking about Australia’s Equity Indexes

All equity indexes are not created equal, and that is very apparent in Australia. On a market capitalization-weighted basis, Australia’s equity market11 is over 50% exposed to Financials.12

Introducing the WisdomTree Australia Dividend Index for Broader Sector Exposures (as of 3/2/15)

In our opinion, any time any index has a greater than 50% exposure to a single sector, there is significant risk. We remind investors that Australian equities are more than just Financials and that options exist to be more broadly exposed to this market.

1Refers to the performance of the Bloomberg Commodity Index from 12/31/13 to 12/31/14.
2We looked at the period from 12/31/12 to 3/2/15. This period encompassed quantitative easing from the United States and Japan and announcements of quantitative easing from the European Central Bank.
3European Monetary Union refers to the 19 countries that use the euro as their currency.
4Source: Bloomberg, with data as of 3/2/15.
5Refers specifically to the trailing 12-month dividend yield.
6Source: Bloomberg, with data as of 3/2/15.
7Euro area refers to the universe of the MSCI EMU Index.
8Sources: WisdomTree, MSCI, with data extending from 12/31/69 to 12/31/14.
9Mark Thompson, “China Pumps $100 Billion into Banks to Boost Economy,” CNN Money, 2/4/2015.
10Steven Yang et al. “China Said to Accelerate $1 Trillion in Projects to Spur GDP,” Bloomberg Business, 1/5/15.
11Refers to the MSCI Australia Index universe.
12Source: Bloomberg, with data as of 3/2/15.

Important Risks Related to this Article

 

Investments focused in Australia are increasing the impact of events and developments associated with the region, which can adversely affect performance.